Under performing Mutual Funds

Various studies in the US have shown that very few mutual funds out there have been able to beat the benchmarks and its no wonder that there has bee a steady and strong rise in the participation by investors into simple ETF’s that track the market.

In India, the scene has been a bit different though with quite a few funds being able to generate returns well beyond what the benchmarks have provided. Out-performance in our case has more to do with picking stocks outside of the Universe of the benchmark and hence strictly speaking may not be comparable, but still the fact that they have out-performed what a investment in Nifty Bees (the largest ETF in India) has meant that ETF investing in India has not caught on as much as in US.

But is this out-performance fading away. A study by  S&P Dow Jones Indices seems to suggest that over the last 5 years, more funds under-performed the large cap indices (BSE-100 in this case). Of course, 5 years is too short a time to really understand whether our fund managers too are no better than those in US. A better study would be over a period of say 10 or 15 years when we have seen both a strong bull and bear markets.

A critique of the study seems to be that it has not accounted for size, but for the investor, does the size of the fund really matter or does it matter as to whether he gets better returns for his investment.

Source Article : Study finds mutual funds are not for long-haul (LT @invest_mutual)